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Wed 20th Feb 2019 - Cat Rock increases pressure on Just Eat to consider merger by releasing transcript
Cat Rock increases pressure on Just Eat to consider merger by releasing transcript: Investment fund Cat Rock Capital, which owns 2% of the shares in online food delivery business Just Eat, has released a transcript of a conference call with 22 sell-side analysts in which it makes the case for a Just Eat merger – and expresses concerns about Just Eat’s leadership. The move will be viewed as an attempt to apply more pressure on Just Eat to pursue merger opportunities. Managing partner Alex Captain told the group of analysts: “We’re the tenth largest shareholder in the company, according to Bloomberg. We’ve been shareholders at Just Eat for close to two years, and we’ve been researching and investing in the sector globally for many years prior to that. We are not activists, but we do try to be as helpful as possible to the companies that we invest in, and that’s what we’re trying to do here at Just Eat. I should say, before we jump into some of the complaints that we have about Just Eat’s management over the past few months, we are deeply excited about the company’s potential and we’re very focused, as many of you know, very focused on helping it find the management team that is going to allow it to take advantage of that potential. I wanted to provide a brief background on our engagement with the Just Eat board. And then we’ll walk through a quick overview of, number one, why a merger is so compelling, and number two, why we think this option is available to Just Eat today. And then after that we’ll jump right into questions. First, with respect to engagement, as many of you know, we sent a letter to the board of directors on 17 December of last year, asking for the company to put out three-year financial targets and to set the executives’ compensation plan based on those targets. We asked the board get back to us within 30 days on our proposal, otherwise we had planned to take additional action. Then 34 days later, they announced the departure of Peter Plumb, the chief executive. We welcomed Plumb’s departure and we think other Just Eat shareholders also welcomed his departure. And we took that opportunity, when the board had announced it, we took that opportunity to try to engage deeply with the board in any way we could to help the company, both by proposing candidates as well as by proposing people the board could consult with, in order to source and to choose the best candidates. Since Plumb’s departure there have been three material developments. The first material development is we learned shortly after Plumb’s departure Chris Simair had left the company late last year. For those of you, all of you follow the company closely, Simair is the chief executive and co-founder of SkipTheDishes. He was an inspiring leader, he was critical to the success of SkipTheDishes. SkipTheDishes and the Canadian business as a whole will be close to 30% of Just Eat’s total revenue in 2019, so it’s the second largest business behind the UK at Just Eat. It’s also the fastest growing business at Just Eat. And because of its logistics capabilities, it plays an important role in Just Eat’s overall global logistics initiative. We were deeply disappointed to hear the company had lost this important country-level chief executive, but we were frankly shocked to hear the company had decided to replace Simair with Kevin Edwards, who was the chief marketing officer of the Movember Foundation, which is a not-for-profit organisation focused on getting men to grow mustaches to raise awareness of men’s health issues. Edwards had joined the company in 2018, and given the importance of the SkipTheDishes chief executive role, given the importance of the delivery initiative, we were left scratching our heads about why someone who doesn’t have online food delivery experience was appointed to that role. The second material development that occurred after Plumb’s departure was we learned Peter Duffy, the interim chief executive, is being considered for the permanent chief executive role. And, we really like Duffy on a personal level from our conversations with him, but he has the same deficiency that Plumb had, which is basically he has to learn the business as he attempts to lead the business. Just Eat, since the departure of David Buttress, has not had a chief executive that actually knows online food delivery, and we think Duffy, although we like him on a personal level, is someone who’s from outside of the industry and doesn’t have the experience to hit the ground running on the company’s market place and delivery initiatives. The third material development that occurred after Plumb’s departure is we found out the board was not interested in engaging, so we provided the board with two highly-experienced candidates for the chief executive role. These candidates had years and years of online food delivery experience. They had experience actually running online food delivery businesses successfully. These are candidates that have significant familiarity with Just Eat, and one of those candidates actually had a time constraint. And we told this to the board, we said you need to get in touch with this candidate quickly because he needs to know you’re serious about considering him in order to turn down a chief executive offer he had at another company. A couple of weeks went by, and we learned the board did not reach out to him, and as a result of that, lost the opportunity to consider that candidate for the chief executive role. We also wrote a letter to the board shortly after Plumb’s departure, where we recommended the board reach out to someone with more than ten years of online food delivery experience, an industry veteran deeply familiar with Just Eat, who could be really helpful to it in navigating the search process. And it ignored that recommendation, as well. Finally, we offered to meet with the board. That was ignored, and we were told to basically wait for public announcements. At that point it became very clear to us not only was the management situation at Just Eat worse than we had previously expected because of Simair’s departure, but at the same time, the board was taking the approach of potentially repeating the mistakes it had made previously by appointing Plumb, by focusing on candidate executives who lack online food delivery experience. Now, as many of you know from our past discussions, merger opportunities and consolidation opportunities in online food delivery have existed for a long time, so the merger proposal we have in the letter is not a new proposal. It’s something hopefully the board has been considering for a while. But we think in light of the management situation at Just Eat that has been eviscerated by what Plumb had done to the business, and given the fact so many of the best chief executives globally who have online food delivery experience are already running online food delivery companies, we think it is really, really important the company very actively engage in merger discussions today. We do not think shareholders want to play a lottery with Just Eat’s future management by waiting for the board to come up with its selection. Now, from a consolidation perspective, it’s fine to ask for consolidation or ask for merger discussions, but if there aren’t credible candidates for the company to merge with, that, of course, is not a viable option. One thing we know about online food delivery from years of research in this sector is that global consolidation is an ongoing theme and creates a lot of value in this sector. And we think, based on the quality of Just Eat’s assets, whether in Europe, whether at iFood or whether at SkipTheDishes, there would be very significant strategic interest in the company. And we also believe the company’s shareholders will benefit significantly from a merger. We think the rationale is obvious – number one, the company can get a world-class management team; number two, the company can get delivery capabilities from other operators that have already developed those delivery capabilities; number three, Just Eat shareholders can get a premium; number four, Just Eat shareholders can continue to participate in future value creation by receiving equity in a pro forma entity. And then finally, Just Eat, through a merger, will get the geographic diversification and scale that would make it a much more formidable competitor against players such as UberEats and Deliveroo. And so we think it’s a no-brainer and a very obvious solution for the company. We obviously have relationships with a number of executives throughout the industry, and we do believe this is a company that would attract significant strategic interest. So, basically, the punchline is we are very focused on ensuring the Just Eat board actually considers this option and seriously pursues this option. We have talked with many other Just Eat shareholders and those shareholders, many of those shareholders, agree with our perspective and agree with this proposal. And so we are very focused on ensuring the board actually takes action on this proposal. And we will be considering all of our options prior to the annual general meeting on 1 May, to the extent it is not clear the company is pursuing this option for value creation.” 


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